Spain’s Prime Property Prices Expected to Continue Rising in 2017

As domestic demands improve, popular island and urban resorts have drawn more wealthy second-home buyers

As Spain’s economic growth and foreign investments gather steam, the country’s major prime property markets are expected to trend further upward this year following a strong finish to 2016, according to a Knight Frank report Tuesday.

Prime prices in popular island and urban resorts, such as Ibiza, Mallorca, Madrid and Barcelona, all registered single-digit price growth by the end of 2016, according to Knight Frank’s Spain Insight 2017.

Knight Frank generally defines prime properties as the top 5% of each market, depending on the property type.

Barcelona was the strongest performer among the most popular destinations, with luxury home prices increasing 6.6% year-over-year in 2016.

“With enquiries for Spanish homes up 150% year-on-year, it is those established prime international destinations, including the cities of Madrid and Barcelona, that continue to benefit and outperform peripheral locations,” Mark Harvey, head of European Sales at Knight Frank, said in the report.

Spain’s GDP growth is projected to hit 2.6% in 2017, surpassing the growth forecast in Germany, Canada and the U.S., according to Knight Frank, citing data from the International Monetary Fund.

Higher employment, rising disposable incomes and stronger consumer confidence are all facilitatory to property market growth. According to Knight Frank, housing demand with mortgage lending rose 20.2% in the first quarter of 2017, compared to the same period last year.

While demand is up, supply remains tight. New housing permits slid 96% between 2006 and 2013, from around 850,000 units a year to 34,000 units, according to the report, citing data from Spain’s BBVA Bank.

The supply-demand imbalance will likely drive up home prices this year. In addition, foreign buyers, seeking to invest-and-rent, continue to flood into the country to take advantage of robust tourism and favorable exchange. The euro, although strengthening in 2017, is still below its historical average against the U.S. dollar and the British pound, according to Knight Frank.

“Indeed as Europe’s recovery takes hold and the euro continues to challenge the dollar’s pre-eminence, it is easy to see how Spanish real estate is attracting international interest again,” Mr. Harvey wrote in the report.